Mounting debt: Find out ways to repay your dues

No money to repay your dues? We find you different options to pay of your loans.

Q. My brother holds Citi Bank and ICICI Bank credit cards. He has no job or money to pay the accumulated debt on his cards. I would like to pay off his loans but I cannot afford the kind of interest that has piled over a period of two years.

If I can pay, is there a way to just pay the principal amount and not the interest? Or can I just hope the banks will write off the amount in four to five years? What should I do?

-- Anirudha Guha

A. Your brother will be in deep water if he doesn’t pay off his dues soon. To put it mildly, recover agents will inconvenience him and banks could take legal actions. So, it’s better to pay off the money.

However, since he has no job at present, here are some possible solutions for him:

1. Talk to the bank

You can meet the concerned people at the bank and explain the situation to them. Some banks will be willing to lower the interest rates or wait till your brother gets a job to repay the pending dues. They would also counsel you on possible options including some of them mentioned below.

2. Loan against securities and assets

If your brother holds life insurance policy, provident fund account (which is more than 5 years old), investments in gold, National Savings Certificate or other such fund instruments, he can be provide them as collateral to banks. Banks would be willing to offer him a loan against the collateral to pay off the credit card dues.

3. Taking a personal loan

You could also take a personal loan if you are willing to pay off the money due on his behalf. Personal loan is a better option because the annualised interest rate is around 15 to 19 per cent, while credit card interest rates range between 25 and 40 per cent.

4. Borrowing from friends and relatives

You could loan some money to your brother or he could ask for financial help from friends and relatives to avoid the accumulating debt and mounting interest.

What if he doesn’t pay off?

Banks send reports of defaulters to Credit Information Bureau (India) Limited (CIBIL). Banks generally do a quick check of an individual's past repayment track record through his credit profile registered with CIBIL. However, if there are several defaults, he might find it next to impossible to obtain a loan in the future. So, by repaying the dues, he might be able to salvage the damage done to his credit profile.

What is CIBIL?

Banks, financial institutions, state financial corporations, non-banking financial companies, housing finance companies and credit card companies are members of CIBIL.

When an individual or commercial establishment takes credit, it is recorded with CIBIL. If you have been repaying your credit card dues and loan EMIs within the due date and there are no defaults, your credit score will be good. This will help you establish a good repayment track record, which will enable you to obtain loans or credit cards with ease in the future.